Oldtent Archives 2007 - 2008

articles.mercola.com/sites/articles/archive/2008/10/28/why-the-u-s-economy-is-going-to-get-much-worse.aspx

Good memories…way back to the beginnings..Tott 1 you guys started something and look what happened….

MINING FINANCE AND INVESTMENT
GLOBAL MINING AND OIL SUFFER
Resources stocks have shed USD 3.4 trillion in market value
Depending on one’s point of view, today’s stock prices could be said to imply crude oil at USD 49 (now USD 64) a barrel, gold at USD 480 (USD 742) an ounce, copper at USD 1.35 (USD 1.84) a pound, platinum at USD 676 (USD 802) an ounce, and uranium at USD 19 (USD 45) a pound.

Author: Barry Sergeant
Posted: Tuesday , 28 Oct 2008

JOHANNESBURG -

www.mineweb.com/mineweb/view/mineweb/en/page67?oid=71566&sn=Detail

Measured from peak prices, mostly seen in and around May this year, the world’s top 20 mining stocks have shed a weighted average of 74% in value, representing an aggregate decline in market value of USD 1.1 trillion.

Seen on the same basis, the world’s top 20 oil majors return numbers of 60% and USD 2.2 trillion, where, however, individual percentage losses vary more widely. Exxon Mobil, a member of the 30-component Dow Jones Industrial Average, has surrendered a relatively modest 31% of its value, compared to particularly heavy losses posted by, in particular, Chinese and Russian counters.

Petrochina is 78% off its high, while Rosneft and LUKoil are 76% adrift. Gazprom, the world’s biggest natural gas entity, is currently trading 81% off its highs. Seen across the broader resources universe, however, oil stocks have fared the best, with average weighted losses just short of 60%. This compares to similarly measured losses of 80% and more for miners of tin, zinc, silver, nickel and copper. Among miners, the smallest losses - at close to 70% each - have been sustained by Tier I miners of iron ore, coal (outside of Asia) and gold.

PRECIOUS METALS
USD/oz
From high*
From low*

Gold
742.38
-28.1%
8.8%

Platinum
801.50
-65.2%
7.7%

Palladium
174.25
-70.7%
5.3%

Silver
8.88
-58.4%
4.9%

BASE METALS
USD/t

Copper
4020
-55.0%
12.0%

Aluminium
2038
-39.7%
5.9%

Nickel
11100
-68.4%
25.4%

Zinc
1185
-59.8%
10.1%

Lead
1295
-65.7%
13.1%

Tin
13550
-46.9%
31.6%

* 12-month

The extent of declines in market value noted among resources stocks exceeds broader market averages. The Morgan Stanley Capital International dollar index for global equities of all kinds has shed just more than 50%, while equities in emerging countries have declined by a more substantial 66%. The Shanghai Composite is down 71%, while Moscow’s MICEX is trading (when it does) at 73% off its highs, compared to the 41% decline noted in the Dow Jones Industrial Average.

According to one London-based analyst, today’s stock prices imply crude oil at USD 49 (currently at USD 64) a barrel, gold at USD 480 (USD 742) an ounce, copper at USD 1.35 (USD 1.84) a pound, platinum at USD 676 (USD 802) an ounce, and uranium at USD 19 (USD 45) a pound. Surprisingly, perhaps, zinc equities anticipate a rally to USD 0.76 (currently at USD 0.51) a pound. Comments from Oz Minerals on the potential closure of its 500,000 tons a year Century zinc mine is seen as sufficient to roughly balance the 2009 zinc market.

Across the wider resources complex, de-leveraging possibly ranks highest among reasons mentioned for the current “insane” valuations seen in equity markets. In the short term a Western World consumer recession and developing world slowdown continue to impact demand, such that commodity pricing has shifted from inventory analysis to marginal cost curve analysis.

The “invincible” reputation that commodities had carried up to a recently as mid-July, but most definitely until mid-May, has been transformed into an idle chimera. The Baltic Dry Shipping index is 91% off its highs; the Reuters/Jefferies CRB and Dow Jones AIG Commodity indices have declined by 46% and 47%, respectively, while BHP Billiton, the world’s biggest diversified resources stock, with feet in both mining and hydrocarbons, ranks as a top performer, having lost a mere 61% of its market value. As mentioned, a number of oil stocks, led by Exxon Mobil, have outperformed their mining peers.

GLOBAL LISTED RESOURCES STOCKS

Average weighted subsectoral losses, from peak prices*

∆ in dollar

comm. price

1
Oil stocks
-58.9%
-53.4%

2
Tier I coal stocks (non-Asia)**
-68.4%
-49.4%

3
Tier I iron ore stocks**
-68.7%
Drifting

4
Tier I gold stocks**
-69.6%
-28.1%

5
Iron ore stocks
-71.8%
Drifting

6
Mining majors**
-73.5%
Varied

7
Uranium producer stocks**
-73.8%
-52.6%

8
Tier I platinum stocks**
-73.8%
-65.2%

9
Gold stocks
-74.4%
-28.1%

10
Potash producers
-74.4%
Not much

11
Tier II iron ore stocks**
-75.3%
Drifting

12
Coal stocks
-75.3%
-49.4%

13
Aluminium stocks
-76.3%
-39.7%

14
Diamond stocks
-76.5%
Falling

15
Tier II gold stocks**
-77.0%
-28.1%

16
Platinum stocks
-77.5%
-65.2%

17
Uranium stocks
-77.8%
-52.6%

18
Tier I coal stocks (Asia)**
-78.4%
-49.4%

19
Copper stocks
-81.0%
-55.0%

20
Nickel stocks
-83.5%
-68.4%

21
Silver stocks
-84.0%
-58.4%

22
Zinc stocks
-84.3%
-59.8%

23
Tin stocks
-84.7%
-46.9%

* Numbers based on a sampling of 830 listed stocks.

** Sub of designated subsector

Source: Analysis by Barry Sergeant

for late response to my earlier post.  Time constraints too often work so that I dump out a post on the tent and then can’t be around to reply in anything like real time. Spend all my time trying to keep up with the post traffic and hardly ever post myself. Thank you gentlemen for your comments.

Equisetum, I was not the Bralorne guy but as you pointed out, it was discussed at Totts I . Besides Fully and myself, neither UBreddy or Sage (to my knowledge) have ever posted to the tent. That leaves Val d’Or kid or Madmike to be the Bralorne man. I’m thinking Mike is the guy. The chart does’t look as bad as some.

By the way, Equis, I have always been impressed by your dual tractor seats. We have a get-away spot in rural Prince Edward County; lots of tractors around of all vintages but if there are any spare seats to be had, well, I’m not looking in the right places. If I get luckier, please know that you will get full credit for the idea, probably carved somewhere in the wooden part.

Night all!

That video just hits it on the old bean. The girl doing the narration makes it happen.Haaaaaa
Hang in there hang on and hold the line we are going for a ride my friend……30 year old scotch all around when HUI 1500 comes in ..a lot sooner than these dark days will portend.

in the 1980’s, i think. the big new york banks loaned big bucks to them and they defaulted. what happened? wall street “securitized” the debt and sold it off as some form of bonds. the bonds were sold at huge discounts and the banks recovered some of their money. ever wonder what those good folks that bought the bonds did? they went to argentina and traded those bonds for farm products, mostly beef. brazil traded mostly tires for their bonds, and mexico paid off in oil.

i don’t believe the inkslingers ever caught on or didn’t consider it newsworthy. see what happens when your currency folds up and you can’t pay debts in a stronger currency? it is possible to pay off your debts by barter (commodities) rather than some other currency if that’s the only way your creditors can get repaid. everyone see where this is headed? fiat will fall out of the loop and commodities will be a form of payment. gold had the distinction of being a currency, commodity, and store of value. few other resources can claim that versatility. we may well revert to a barter system with gold used to settle up the loose ends.
this concept is as old as recorded history. caravans and fleets carried commodities for trade around the world and gold was accepted for value anywhere. the british empire circulated bank notes later but they were backed by silver. a few wars later, the bank notes became fiat.

the fiat lords can never allow a barter system to work. can you imagine hard assets being transferred around and everyone paying their taxes and utility bills in fiat. when the govt employees get paid and try to buy something with a rapidly depreciating asset, they won’t be happy campers. many or most of our politicians in the us house and senate will not run for election in two or four years. they will all give family or health reasons, but the main reason will be the hatred from the folks they represented (and maybe one or two special interest groups).

the old creaky deadwood-at-the-top companies will probably not survive the next several years. the newer smaller companies that can react instantaneously will grow and prosper if they can recognize the new environment they are operating in. the internet will create vast new opportunities in cross border transactions. those countries whose governments are small and encourage commerce will prosper while giant drone armies of government employees will wither.

as the world economies metamorphis, many will suffer while some emerge far better off. we are well on our way. are you going to come out the other side as a butterfly or a worm?

rno

Dear Bill,
For years I have warned customers in our company’s monthly newsletter that a major reason that I didn’t worry about “gold confiscation” is that there was a much more lucrative source of funds—private retirement plans. What I anticipated might happen is a requirement that private retirement plans might be required to allocate 15% of assets to the purchase of federal government bonds. This was one of several reasons that I advocated that our customers avoid purchasing precious metals with their retirement accounts.

Well, something much worse is on the horizon. On October 7, Congressman George Brown conducted a hearing of the Committee on Education and Labor about “Saving Retirement in the Face of America’s Credit Crises: Short Term and Long Term Solutions.” Economics Professor Teresa Ghilarducci of the New School for Social Research testified on “The Impact of the Financial Crisis on Workers’ Retirement Security.” Although she used words like “should” and “could”, basically her proposal advocates that private retirement plan (focusing on 401K plans) assets be converted 100% into federal government bonds paying 3%. At the time that the recipient started collecting Social Security, the bonds would be converted into a monthly annuity payment that would expire at the death of the recipient. There would be none of these assets left in the estate for any heirs.

As part of the bribe to make the nationalization of retirement plans attractive, she advocates converting the retirement plan assets into government bonds as of the value they had before the most recent stock market drop (she specifically mentioned fixing values at some day in August). Going forward, workers would be required to pay 5% of their income to purchase more government bonds to add to this account. Workers would get no tax deduction for this contribution, but the government would contribute $600 per year into the nationalized retirement account of anyone who received a paycheck at any time during the year.

I don’t know that anything will come of this in this Congress, but don’t be surprised if it comes up again next year. One thing that scares me about this proposal is that it would nationalize all precious metals retirement plans along with the rest, to be replaced with government debt. If someone wants to hold onto their precious metals, they need to seriously consider holding them outside of their retirement plans. If you have precious metals IRAs or other retirement plans, you might want to look at getting them out before it might be too late.

I don’t mean to be alarming, but these are alarming times. I would much rather signal the alert a few months early than one day too late.

Pat Heller
Liberty Coin Service
Lansing, Michigan

10/4 and thanks!   BTW, I didn’t get a chance to tell you thanks for that good post about deflation/hyperinflation this weekend.  I read it over over a few times and it helped a lot.

Mexico Mike…

a delivery failure at the COMEX means what?

Hi Bill!
I think it is accurate to state that the gold market has split into one market for those who trade the futures, which are basically promises to deliver gold, and one market for physical bullion. The quoted price for gold is still the spot market price based on paper gold. But I think there is a philosophical divergence at work too. The people who are playing futures and ETFs for bullion are looking for a quick flip for a trading opportunity. Very few of them expect to take physical delivery of the metal. Instead they hope to capture leverage on their little pieces of paper, and exchange their promises of real gold for dollars. Those who are anxiously trying to buy the dwindling supply of real bullion are less concerned about the trading profits they may realize, and are seeking security of ownership and preservation of wealth in uncertain times.

Those gamblers and traders that are playing the spec futures can be easily be spooked out of their positions and they are routinely played for chumps by bullion banks running the short scam. But stop to think for a minute in the event of a delivery failure. Lets just consider a big, reputable state lottery that has attracted the interest of gamblers looking to win big. What if that lottery decided they were not going to pay? How many people would choose to play that lottery the following week?

About 2 years ago, the LME defaulted on nickel futures. What was disgusting about the whole issue is the way that the longs were treated. If my memory is correct, instead of long position holders being allowed to cash in on their fairly earned profits in a short squeeze, the regulating agency declared that all contracts would be frozen within 10% of spot and the settlement would be paid in cash only. And to add insult to injury, the longs were forced to make available their metal surplus to be shorted against them. This enforcement basically marked the top for the nickel market and the price has been in a downtrend ever since. Keep in mind that there is no retail demand for nickel, no line ups in front of nickel bullion stores, and no central bank holdings of nickel. The shorts were allowed to keep their profits when nickel prices were slammed, but when the longs were in the drivers seat, the rules were changed and the winnings were not properly paid out.

So this is where the significance of the diverging markets for gold and silver become a factor. If we do get a delivery failure in the COMEX, gone forever will be the illusion of infinite supply of the metals, and the concept that the bullion banks are in complete control. And with that exposed for once and for all, then the demand to own the real metals will skyrocket beyond what we have seen so far. Those who buy real metal are less likely to puke it out in forced selling from margin calls, or through stop losses. Those who buy bullion are more aggressive to buy when the prices fall and less likely to be induced to sell. So the two biggest weapons for the crooks at the paper market are less of a factor to control the physical market. This is being proven in real time at local bullion retail outlets worldwide. And with every small retail bar that is sold and gone from the inventory, the demand for larger ‘wholesale’ bullion to drawdown the COMEX increases. The day of the delivery failure is coming.

I would not play the paper markets. I have all the volatility I can stand just putting up with the PM junior mining stocks. But if I did, I would be concerned that even if I was on the right side of the trade, the crooks that run the COMEX would just screw me out of my profits anyway, just as we saw at the LME for nickel. Perhaps that is part of the reason why the open interest in the COT report has been in decline. People are finally starting to realize that the casino is rigged and are going somewhere else to speculate. We have also seen the abuses in derivative trading for other asset classes fail recently. Do people think that irresponsible leverage was confined only to swaps and securities? Think again. If GATA is correct, then a whole lot of the physical bullion that has supposedly been locked in vaults is now gone forever and replaced by promises to repay loans. So the specter of a delivery failure in the metals pits should not be that far from reality. The FED seems very eager these days to hand out money that has almost no chance of ever being repaid, so why should what the bullion banks have been doing be seen as anything out of the ordinary?

There can be many promises to deliver generated on physical gold and silver, but once its gone, its gone… Specs will do well to remember that fact. For example, if gold pledged to the IMF is actually also double-counted by CBs as if it is owned by them, and then CBs sell swaps on that gold, and then the IMF itself ‘loans’ out the gold so that it is sold in the market, then you have at least three parties that think they own the same gold. Only one party actually does own it… the guy that bought the physical bullion. Musical chairs is a fun game to play until you find yourself without a chair when the music stops.

When push comes to shove and the diverging markets are exposed, I believe the real physical bullion will trump the paper. I doubt I will regret my decision to buy a small chunk of gold and silver and own the real metal. The fake spot price may be down today, but I am guessing the derivative scam in the metals trading will implode like all the others. I do not play the lottery either by the way.
cheers!
MexicoMike

Some points to note: in my experience the exchange authorities, as in the case of the Hunt silver situation, interfere in the futures markets only when prices are soaring, in order to protect the trade shorts. As lousy as that is in itself, I find it difficult visualizing them changing the rules of the game with prices so depressed. Yes, they can do anything, but how do they even attempt to explain a change? Were gold and silver prices to double and triple overnight, it might be a different story. By then, however, those who take delivery at these chump change prices will make fortunes.

It seems to me a default of any kind, or changing of the rules to protect the shorts, threatens the integrity of all the futures exchanges in the US … and that means our stock markets, treasury futures, etc. Overtly bailing out the Comex shorts in gold and silver means bailing out the banks again. After the recent bailout interventions, it would really shine a lot more unwanted attention on the New York/Washington cozy axis and what that portends for the rest of the US.

If the shorts are threatened with delivery issues in the months ahead, they ought to run for the hills while they can, which is how the futures market is designed to work. Yes, never underestimate what The Gold Cartel is capable of, but we will have a new Administration soon. There is already a great deal of smoke regarding the dichotomy between the very tight worldwide physical market and the paper price on the Comex. Based on the supply/demand situation and the available central bank gold left to meet that deficit, there is NO WAY the price of gold is not going to explode in the years ahead. Would a new Administration not want to take on the rigging of the market issue from the get-go, if they knew it would blow up in their faces in the years ahead?

I don’t think so … and if Obama wins, it is my intention to get to the right people in the Obama camp to explain what has occurred and why the price of gold is going to blow sky high during his term. (I managed to get to President Bush, why not Obama?) After presenting the basic facts, I will suggest these “right people” take them to Obama advisors Rubin and Summers and ask them if the information is correct. No one knows the real gold story better than Rubin and Summers. Let them go on the record with Obama (should McCain win another approach will be needed). It will be the future status and reputations of these former Treasury Secretaries if they give Obama wrong scoop. The perfect time to deal with the gold issue for the Obama camp, or McCain camp, will be soon after they move into the Oval Office … after which they will receive a grace period of a number of months regarding adverse market developments … ones which accrue to the former President’s watch.

Yesterday my initial XAU and HUI readings were off, missing a late plunge, because Kitco appears to have changed the way they are reporting them. The closes used to be spot on about 10 minutes after the bell … seems now they aren’t close 30 minutes after the bell.

Ridiculously oversold gold/silver shares popped with the general rally late in the day. The XAU went up 8.36 to 72.72 and the HUI gained 21.52 to 172.69.
*The US economy is sliding into a DEEP recession.

*The US jobs picture is deteriorating rapidly, as is the US economic news.

*The Fed will cut interest rates tomorrow to at least 1%, which is not that far from zero.

*The Fed and Treasury are, and in the process of, pouring enormous amount of liquidity into our financial markets and economy.

*The fundamentals for the US dollar stink.

*Demand for physical gold and silver is soaring.

*The Gold Cartel and silver price managers have run the specs out of the paper market.

Add it all up and you get a recipe for gold and silver to explode before year end.

GATA BE IN IT TO WIN IT!

MIDAS

You say it is not a bombshell.  I think in some countries it would be a bombshell if something like the Denninger decription you posted at 22:34 happened.  But  from what I have been able to detect from my distance, I guess such shenanigans by the U.S. administration and U.S. Treasury Secretary are norm for the course in the USA.  Too bad, because so many people in the world had faith in the US as pointing the way of  moral authority to lead the way for the rest of us.   Funny things happen.  Best wishes.  Equiz.

http://www.cbc.ca/22minutes/videoplayer2.html

Click on “Sponsor an Executive” on the list at right side of page. Funny.

MadMike

…not a popuarity contest…Equiz is right of course..we dont need a boss…just trying to keep the peace

…….and now for another instalment of….Oh What a Wonderful World of Fiat !…..

Bill H:

To all; I wrote during the Fannie/Freddie debacle that everything financial would end up n the Treasury’s lap. It is now clear that all the past financial shenanigans are coming home to roost and the Treasury is creating plan after plan to save everything. What originally started out as a credit crunch has now morphed into a worldwide CURRENCY CRISIS. Many nations worldwide are currently in the throes of currency runs. A currency run is for all intents and purposes the same exact thing as a bank run, however these runs are on nations and currencies not just individual banks.

Currently Iceland has raised interest rates to 18%, Hungary has gone to 11.5 % and Romania has overnight rates of 900%!!! Pakistan is on the verge of bankruptcy, Turkey is looking for IMF loans, the Brazilian Real has cratered and Russia is sporting CDS rates above 1200 which is higher than Iceland’s was just before their collapse. Nations will fall like dominoes, interest rates globally will explode while currencies implode.

Recently, many people have been talking about the “Weimar” experience. I agree that hyperinflation and destruction of currencies are in the cards. However, I get the sense that while people are talking about it, they don’t see the whole picture. The “whole” picture is that every nation, every banking system, and every currency on planet earth is part of this domino chain. The point is, THIS IS A GLOBAL CURRENCY CRISIS WHERE !!!ALL!!! CURRENCIES COLLAPSE. This is plain and simply a global bankruptcy and a FIAT banking system implosion. The Fed has fought it along with Treasury, the ECB, Bank of London, Canada, Australia, Russia, Brazil, etc. etc. etc. and now even the IMF. They are all failing and coming under the weight of the deflationary steamroller.

This will result in a new “system” and Gold will be at the epicenter. Many are currently fretting about their Gold share holdings because they have been hit very hard in the stock market meltdown. I believe that when the smoke clears this will become an ounce counting exercise and currencies that have “ounces” held or access to ounces within their national boundaries will fare best. Companies that have “ounces” in the ground or in production will be revalued literally overnight.

If you had a crystal ball and it told you that virtually all countries and all currencies were entering the bankruptcy/failure stage, where would you want to store your wealth? Which currency? What is currently happening is that anyone who attended the previous party has been infected, this infection was supposedly contained but now even governments are wheezing, hacking, and vomiting. If you understand that the current crisis is systemic and surrounds not only banking systems but also the currencies themselves, please take the time to contemplate what happens, WHAT HAS ALWAYS HAPPENED, in the after math of a currency crisis.

REVALUATION!

Many currencies will fail and be replaced across the globe, some may survive and be reverse split manyfold for one, but only one currency class will be revalued by multiples higher. Because there are so few “ounces” and so many “paper” currency units outstanding across the globe, the coming revaluation will be beyond imagination. Weimar at the time was beyond imagination, this “currency episode” will be beyond Weimar. Regards, Bill H.

our only hope is an early “winterkill”.

rno

Bill:
Even though the market was down JUST 200 points, it was one of the ugliest days yet. Deutsche Bank is now down from $75 to under $32 in 3 weeks. UBS is right near its low. Ditto C and GE and GS looks like it ready to join the crowd. I don’t know exactly what we are looking at especially since the HUI fell off a cliff on the close. And still no headlines in the Times.

My guess is that we are moments away from an earth shattering event that will close down markets. The authorities have shown their hand and no one cares or can do anything. Keep your eyes on the above stocks to see if one or more suddenly breaks down here. It is very frightening and it reminds me of the scripture in Revelation. “Woe! Woe, O great city, where all who had ships on the sea became rich through her wealth! In one hour she has been brought to ruin!” Revelelation 18:9

Given the way ALL of the charts look, it is possible that we will be in an instant depression with no functioning currency and credit system. I think we will know by the end of next week. What a horrible speculation! Chuck

More from Chuck this afternoon…
Bill:
Briefly. I think we are near the make or break time of the crushing deflation for this year. I pointed out yesterday what I felt were very probable bottoms on the oil shares which happened as oil continued to go lower. Today Exxon is up almost $8 and Chevron 10%. I am impressed, and more importantly, we have to allow for the shift back into commodities at this point. What it will bring is speculation here but it could mean the hyperinflation that many astute commentators are looking for.

If this happens, it should mean an explosion in gold and r-e-l-i-e-f for us. I think that the latest we will have to wait will be right after the elections. I am allowing for a final panic in stocks since the financials still behave poorly. But the jump in the oil shares are signifyiing a radical shift in the markets, at least for a season.

Never a dull day. Chuck